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The Missing Sensor

Mar 29, 2011 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, Economic Thinkers, International Trade and Finance, Labor • 173 Views    1 Comment

According to one estimate, worldwide auto production could slide by 30% because Hitachi Automotive’s Sawa Ibaraki Prefecture plant was debilitated by Japan’s earthquake and tsunami. Hitachi Automotive makes the air flow sensors that are crucial in autos for determining “how much fuel to inject, when to ignite the cylinder, and when to shift the transmission.”

Translate sensor production into jobs, sales, related parts and you have a massive ripple from one $90 car part. In Shreveport LA, small pick-up truck production from GM stopped. As a result, GM’s Buffalo, NY engine plant had to lay off 10% of its workers. Similarly, in Spain, France, and Slovakia, Peugeot-Citroen announced cutbacks. 

The Economic Lesson

This returns us to the classic 1958 pencil essay by Leonard Read. Conveying how people and places around the world are necessary for a simple pencil, at the beginning of the essay, the pencil says, “I, Pencil, simple though I appear to be, merit your wonder and awe…Simple? Yet not a single person on the face of this earth knows how to make me…”

It also reminds us that “made in …” labels are not entirely accurate. A t-shirt “Made in China” could include cotton grown in Texas. The iPhone is actually made by 9 different suppliers located around the world. And, a pick-up truck that is made in a U.S. factory could include a sensor that was manufactured Japan.

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  • ksdds

    I also read the report and several others attempting to quantify the automotive industry’s exposure to all the “missing parts”. What I haven’t read is an analysis of any potential long-term damage for any car making company. A lot of fuss is being made about the shortages on the supply end but nothing has been written about how this will affect demand. People still need cars and as long as the economy continues to slowly chug along the supply side glitch will only result in higher sales numbers down the line. So my question is howe significant and relevant is this topic one year from now?

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